Tuesday, November 16, 2010

The use of Powers of Attorney (“POAs”) has become commonplace in all
manner of transactions. In its most basic form, a POA authorizes someone
to act on your behalf. Sometimes, POAs are used for convenience or
expediency. For example, a party to a real estate contract might grant a
POA to an agent to execute the necessary paperwork. Other times, POAs
are used when the principal lacks the capacity or ability to make
certain decisions for himself. In such situations, POAs can be used to
manage or sell property, authorize appropriate medical care, and provide
for dependents. What happens, however, when a POA is granted to someone
that does not have the principal’s best interests at heart? What
remedies are available to the principal and/or his family when it
appears that the person entrusted with the POA is self-dealing?

In response to the deepening flood of litigation involving Powers of
Attorney (“POAs”), the Virginia General Assembly recently promulgated
Uniform Power of Attorney Act (“UPAA”)(Va. Code Ann. §§ 26-72, et. seq.)
Prior to the enactment of UPAA, there was no comprehensive statutory
regulation of POAs. Instead, the courts were largely guided by common
law. UPAA provides specific enumeration of an agent’s duties under a POA
and instruction on how others may challenge the actions of an agent.

The agent must:

1. Act in accordance with the principal's reasonable expectations to the
extent actually known by the agent and, otherwise, in the principal's
best interest;

2. Act in good faith; and

3. Act only within the scope of authority granted in the power of attorney.

With certain exceptions, the agent must also:

1. Act loyally for the principal's benefit;

2. Act so as not to create a conflict of interest that impairs the
agent's ability to act impartially in the principal's best interest;

3. Act with the care, competence, and diligence ordinarily exercised by agents in similar circumstances;

4. Keep a record of all receipts, disbursements, and transactions made on behalf of the principal;

5. Cooperate with a person that has authority to make health care
decisions for the principal to carry out the principal's reasonable
expectations to the extent actually known by the agent and otherwise act
in the principal's best interest; and

6. Attempt to preserve the principal's estate plan, to the extent
actually known by the agent, if preserving the plan is consistent with
the principal's best interest based on all relevant factors, including:

d. Eligibility for a benefit, a program, or assistance under a statute or regulation.

Upon suspicion that an agent has violated any of the duties enumerated
above, anyone of the following persons may petition the circuit court to
review the actions of an agent:

1. The principal or the agent;

2. A guardian, conservator, personal representative of the estate of a
deceased principal, or other fiduciary acting for the principal;

3. A person authorized to make health care decisions for the principal;

4. The principal's spouse, parent, or descendant;

5. An adult who is a brother, sister, niece, or nephew of the principal;

6. A person named as a beneficiary to receive any property, benefit, or
contractual right on the principal's death or as a beneficiary of a
trust created by or for the principal that has a financial interest in
the principal's estate;

7. The adult protective services unit of the local department of social
services for the county or city where the principal resides or is
located;

8. The principal's caregiver or another person that demonstrates sufficient interest in the principal's welfare; and

9. A person asked to accept the power of attorney.

An agent that violates the UPAA is liable to the principal or the principal's heirs for the amount required to:

1. Restore the value of the principal's property to what it would have been had the violation not occurred; and

2. Reimburse the principal or the principal's heirs for the attorney fees and costs paid on the agent's behalf.

This statutory scheme is only beginning to be tested in Virginia courts.
Case law will further hone and define the duties owed by an agent under
a POA and the remedies available to others upon a finding that the
agent has breach his duties to the principal. But the UPAA is the first
step toward a establishing a uniform framework for handling claims
involving POAs.

Usually, when clients come to us about real estate deals gone bad, the
facts revolve around a buyer and a seller having a dispute about whether
the deal has to go forward. Every so often, however, we get an inquiry
about a dispute between a buyer or seller and his or her real estate
agent. One such dispute recently led to a headline-making ruling about
sanctions in the context of frivolous claims in a lawsuit.

In 2007, our clients – Husband and Wife – sought representation in
claims that had been made against them by a former (fired) real estate
agent (the Agent). The Agent was not only suing for commission, but
rather for millions of dollars, plus attorney’s fees, claiming
defamation (for filing a complaint about her with the Virginia Real
Estate Board), conspiracy and tortious interference with contract. The
Agent also sued the buyer’s agent. As you might imagine, our clients
were reeling.

All attempts at settlement failed and the case was litigated. We argued
that the Agent had been properly terminated in light of the terms of the
listing agreement, and therefore was not entitled to any commission.
Even if she had been entitled to a commission, it would have been two
percent of the sales price of the property, but she wanted five percent
of a sale she suggested, but which never came to fruition. Two different
attorneys made this claim on the Agent’s behalf prior to filing suit.
Once suit was filed, however, the Agent’s demand increased to not only
five percent of the full sale, but also six percent of a future sale
based on the assumption that the buyer she had found would’ve torn down
the house, built a “McMansion” on the site, and sold the place using her
as his agent. Additionally, the Agent claimed that the complaint with
the VREB entitled her to in excess of a million dollars in defamation
damages, and that Husband had conspired with the buyers’ agent to “cut
her out” of the deal. No evidence of any such conspiracy existed, nor
would it make any sense from the buyers’ agent’s perspective.

Piece by piece, we got various parts of the lawsuit dismissed. The court
agreed that the defamation claims for making a complaint to the Real
Estate Board should be dismissed under the “absolute privilege” for
defamation. The law in Virginia states that parties to litigation have
an absolute right to speak without fear of being held liable for libel
or slander; and that privilege also applies in “quasi-judicial” contexts
such as administrative agencies, as long as certain facts apply (like
subpoena power, oath-taking, and so forth – all of which applied to the
Real Estate Board).

The case proceeded to trial on the claims of (1) tortious interference
with a contract expectancy (that is, improperly interfering with another
person’s expected contract, causing the contract not to occur); (2)
conspiracy to harm a business (that is, joining with another person to
hurt someone else in commerce); and (3) defamation (lying about another
person – in this case, Husband allegedly lying to the buyers’ agent
about the Agent in order to further the conspiracy to “cut her out of
the deal”).

The evidence consisted of the following: (1) Husband supposedly disliked
the plaintiff; and (2) Husband and the buyers’ agent had spoken
together by phone. Husband admitted to speaking with the buyers’ agent –
in fact, part of the reason Wife fired the Agent was the fact that the
buyers’ agent said she had been discouraged from making an offer on the
property! There was no evidence that Husband acted improperly in
advising Wife to fire the Agent. In fact, evidence was introduced that
Wife came to Husband for advice, and after presenting the matter to an
attorney who advised him to fire the Agent, Husband advised Wife
accordingly. In Virginia, the giving requested advice is a defense to a
tortious-interference claim, so Husband appeared to be free of liability
on that count.

Likewise, no evidence was introduced that Husband had entered into an
agreement with the buyers’ agent to get the Agent fired. So, at the
close of the Agent’s case, toward the end of day two of trial, we and
the attorney for the buyer’s agent moved to strike the evidence – a
Virginia procedure that basically accuses the plaintiff of having failed
to prove his or her case. As we arrived on day three to continue our
arguments on the Motions to Strike, the Agent “nonsuited” her case
against the buyers’ agent and her brokerage firm. A nonsuit is a
voluntary dismissal “without prejudice,” which basically allows a
plaintiff one free “do-over” in most cases, giving the plaintiff a
certain amount of time to refile his/her case. So the buyers’ agent was
out of the case, though subject to the possibility of a future second
lawsuit. Husband remained as a Defendant, and argument on his Motion to
Strike continued. As the Judge was prepared to rule, the Agent nonsuited
the remaining case against Husband.

All defendants joined in asking the trial court to allow a post-trial
motion for sanctions under Virginia Code § 8.01 271.1, which bans
frivolous lawsuits. The court agreed to let the defendants present their
arguments, and after quite of bit of hard-fought post-trial motions,
including multiple pleadings, hearings, and a great deal of evidence,
the trial court found that the Agent had filed a frivolous lawsuit in
violation of the statute, and as a sanction it awarded reasonable
attorneys’ fees to the defendants in the case. Our clients were awarded
$158,318.40 in sanctions against the plaintiffs and their attorney; and
the other defendants were awarded $113,778.06 in sanctions. A suit borne
out of what the Agent saw as a loss of commission totaling – even
counting her speculative “future sale” – approximately $168,000, and
built upon emotion and speculation, rather than a solid legal position,
led to a “landmark” decision on sanctions.

Why was the Agent fired, you ask? Well, among other things, because – in
violation of her contract – she never even listed the property for
sale.

The funny thing is, if the Agent hadn’t been fired, at best she was
entitled to $13,940 (2% of the actual sale that occurred, since the
buyers had an agent); yet she was seeking $37,500 (5% of the proposed
sale she found, even though that one didn’t occur), plus $130,500 (6% of
the “future commission” sale), for a grand total of $168,000 in lost
commissions. In seeking millions of dollars, she got “aggressive” (to
use her lawyer’s term); in the end, it cost her. A lot.

The case is currently on appeal to the Virginia Supreme Court. No word yet about whether the Court will take the appeal.

Friday, January 15, 2010

Simply put, “equitable distribution” is meant to be and do what the name
implies: distribution of property upon divorce into fair -- not
necessarily equal -- shares. This is accomplished by taking a number of
factors into consideration to determine the financial position of the
parties after divorce. In Virginia, similar to other equitable
distribution states, the factors are:

1. Each party’s contributions – financial and otherwise – to the
well-being of the family and the acquisition, care and maintenance of
marital property;

2. Length of the marriage;

3. Age, physical and mental condition of the parties;

4. Cause of dissolution of marriage, including fault grounds;

5. How and when marital property was acquired;

6. Debts and liabilities of the parties and whether debt is secured by marital property;

7. Liquidity – or lack thereof – of marital property;

8. Tax consequences of distribution to each party;

9. Use of marital funds for separate purposes, dissipation of marital funds done in anticipation of divorce after separation;

10. Other factors deemed necessary or appropriate to consider to arrive at a “fair and equitable monetary reward.”

If after reading the statutory language you are no closer to
understanding what you are likely to receive in an equitable
distribution proceeding, then you are halfway to reaching the proper
mindset necessary for entering into divorce litigation. The lack of
predictive quality to this and similar statutes around the country --
while not purposefully so -- is the best of many reasons to try and
reach a settlement as to the distribution of your property rather than
take the matter to trial. There is not always a financially feasible as
well as legally sound reason to leave distribution to a Judge, to whom
such statutes offer no more guidance as to what is “equitable” than they
do to you or me.

However -- whether it is a product of the vagueness of the statutory
factors or a testament to their validity -- many if not most equitable
distribution divorce decrees ultimately divide the marital property
50/50! In other words, equitable distribution divorces tend to look a
lot like “community property” divorces. Confused? What if I told you
that five of the country’s community property states subject the spousal
shares to equitable distribution? What does this all mean to the bottom
line?

The best way to try and understand what you might be facing is to avoid
the distribution consideration and focus on the classification of your
property, because therein lies the similarity between the states as well
as the true reason that we are finding 50/50 splits across the map.
Regardless of where you live, the classification of property drives the
distribution and if you understand what you have, you can understand how
much you’ll keep.

For the most part, community property states have two classes of
property: “community” and “separate.” These jurisdictions consider
everything acquired during the marriage to be community property except
that acquired by gift or inheritance. Everything acquired prior, or by
gift or inheritance, is “separate.”

Equitable distribution states classify property as marital, separate, or
part-marital/part-separate. “Marital property” is similar to “community
property.” “Separate property” is property acquired prior to marriage;
property received in exchange or as proceeds of separate property,
regardless of when acquired; and gifts or inheritances, regardless of
when acquired. “Part-marital/part-separate” occurs when marital is
commingled with separate property or when the non-owning spouse adds
value – either monetary or non-monetary – through personal efforts.

In the vast majority of cases – not the most notable, but the most
common -- most property is not separate. You find more separate property
in very short marriages or those governed by prenuptial agreements –
ironically, two factors common in “Hollywood marriages.” These are the
exceptions, not the rules. Because most property is classified as
community, marital, or at least part-marital, you will find that most
divorce decrees split most property 50/50.

So, where does all of this lead us? The moral of the story is that if
your attorney suggests early settlement negotiations and begins with the
notion of an equal division of property and works from there --
regardless of where you live -- you are likely getting better advice
than if your attorney tells you he’ll help you “take him for all he’s
worth,” because, in fact, he’s probably only worth about half of what
you were worth together.

About Me

Rich Rosenthal Brincefield Manitta Dzubin & Kroeger, LLP is a full service law firm concentrating in civil litigation, complex criminal defense, family law, personal injuries and product liabililty, wills, trusts and estates, civil liberties, business affairs and employment, zoning and land use, and debtor- creditor relations. Conveniently located in the historic Torpedo Factory office building in Old Town, Alexandria, the firm provides high quality, yet cost-effective, legal advice and representation to individuals and businesses throughout Northern Virginia.